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November 28, 2006

Holiday Shoppers Will Spend $25 billion in Gift Cards

posted by MR WAVETHEORY at 11/28/2006 10:08:00 AM
The fourth annual National Retail Federation (NRF) Gift Card Survey, conducted by BIGresearch, found that gift card sales will total $24.81 billion this holiday season, an impressive $6 billion increase over 2005. Furthermore, the average consumer will spend more on gift cards than they did last year ($116.51 vs. $88.03 in 2005). That is 30% more than last year.

"The popularity of gift cards has increased at a remarkable rate," said Tracy Mullin, NRF President and CEO. "Consumers love gift cards because they take the guessing out of holiday shopping and retailers love them because they are easy to stock and take up minimum shelf space."

According to the survey, more than two-thirds (79.7%) of consumers polled said that they plan on purchasing at least one gift card this holiday season and more than half (52.8%) said they would like to receive a gift card this year.

Phil Rist, Vice President of Strategy for BIGresearch, noted that "Gift cards have taken a lot of the stress out of holiday shopping, making them a favorite among people of all ages. Whether they are a stand-alone gift or an addition to a gift basket, gift cards please even the most fickle people on holiday shopping lists."

Most of today's gift cards differ from traditional gift certificates because they are "stored value" cards. When a consumer spends $25 from a $50 gift card, the card automatically updates the balance. This is more efficient than the retailer reissuing another gift certificate to the consumer for the balance.

Many states have laws which allow the state to collect "abandoned property," which means that if personal property goes unclaimed for a certain period of time, the state has the right to take it into the state treasury. Like bank accounts and other personal property, gift cards that go unused or unredeemed for more that a few years are often treated as "abandoned" property by states. Where these laws apply, sometimes in as little as 2-3 years, retailers are required to turn over unused gift card dollars to state governments under the guise of returning the "abandoned" money to the gift card purchaser. In fact, states make millions of dollars a year from these clauses. Consumers are encouraged to spend their gift cards within the first year of purchase so that they, not the state where the gift card holder lives, receives the full value.

Retailers do not count a gift card as a sale when it is purchased-instead, they wait until the gift card is redeemed and merchandise is exchanged. As a result, some of the $24.81 billion spent on gift cards this holiday may not show up in "holiday" sales, but instead as sales in January or February, when the gift card is redeemed.

NRF continues to forecast that holiday sales will increase 5.0 percent this year to $457.4 billion.

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